As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The company expects to pay $116 million for set up costs of its new division now and $6 million operating costs each year for the next 15 years. The company estimates that the new division will be able to generate annual revenue of $45 million beginning 5 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount rate is 15 % per year and the project life is 15 years?
As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The company expects to pay $116 million for set up costs of its new division now and $6 million operating costs each year for the next 15 years. The company estimates that the new division will be able to generate annual revenue of $45 million beginning 5 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount rate is 15 % per year and the project life is 15 years?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 3E
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![As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical
company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The
company expects to pay $116 million for set up costs of its new division now and $6 million operating costs each year for
the next 15 years. The company estimates that the new division will be able to generate annual revenue of $45 million
beginning 5 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount
rate is 15 % per year and the project life is 15 years?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F998e0b72-d04c-44d7-b863-0197461d4587%2F33e7b816-b70d-4205-a112-fcd8d4253e26%2Fnq08ue7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical
company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The
company expects to pay $116 million for set up costs of its new division now and $6 million operating costs each year for
the next 15 years. The company estimates that the new division will be able to generate annual revenue of $45 million
beginning 5 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount
rate is 15 % per year and the project life is 15 years?
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